A confidential International Monetary Fund (IMF) report has warned Asia-Pacific Economic Co-operation (Apec) members that their toughest challenges could come from a flood - rather than a paucity - of capital inflows.
The report, which was presented to the finance ministers of the 18 member economies, urges them to develop policies that withstand fluctuations or even sharp reversals in foreign resources.
'Domestic policies have to place the economy on a path where it can weather even severe shocks, shocks that are partly exogenous and will occur in the world economy from time to time.' Volatility can arise because of sudden reversals in capital flows or from financial crises.
The report states: 'If an economy is sufficiently far from the precipice, it may avoid the sometimes crippling effects from sudden reversals in capital flows experiences in the past.' The report's conclusion is expected to surprise many ministers who had been using the Apec forum to focus on ways of attracting foreign capital.
Members traditionally classified as 'developing' - including Hong Kong, China, Malaysia and the Philippines - absorb more than half of all capital flows to developing countries.
This has led to a virtual circle where growth combined with economic reform attracted more inflows of foreign resources.
In private talks with finance ministers the IMF's managing director, Michel Camdessus, praised the territory's 'sound' monetary and fiscal policies which would enable it to withstand volatile capital flows.
